Question

Question 5:

(A) As a chairman of National detergents, you have to prepare the budget for the next period. As a head of budget committee, the chairman has to organize the activities of budgetary control for preparing various budgets for the company. Do you think budgetary control is important for an organization? How?

(5 Marks, Word Limit 200-500)

Answer 1

A Budget is a formal plan of action which helps the organization in achieving its objectives. Firms extensively use the budgeting techniques in achieving its strategic long term objectives and goals. A Budget usually relates to future period and should be continuously monitored. A budget is a method for translating the goals and strategies of an organization into operational terms.

Budgeting is the complete process of designing, implementing and operating budgets. The main emphasis in budgeting process involves the provision of resources to support plans which are being implemented.

Advantages of budgets for an organization

• Helps in achieving efficiency and economy in various activities and operations of the company
• It helps in bringing divisional and departmental accountability and responsibility
• It helps in business planning and achieving strategic objectives
• It helps in Cost control and Cost reduction
• It helps in performance evaluation of employees and is a source of motivation to achieve targets
• It helps management in understanding most profitable combination of different factors of production
• It helps management in taking timely and reliable decisions
• It helps in smooth conduct of business operations by taking into account all conditions
• Budget is used as an incentive targets in organization to achieve goals